Turbotax incorrectly showing Roth IRA recharacterization to traditional IRA as taxable income

I'm pulling my hair out trying to get Turbotax to handle my IRA situation correctly. For my 2022 taxes, I discovered I had contributed $4,250 too much to my Roth IRA. I had the excess recharacterized to my traditional IRA, then converted it back to Roth using the backdoor Roth method. Now I've got two 1099-Rs, but Turbotax is treating the $4,250 recharacterization as taxable retirement income! I've tried every possible way to make this stop but nothing works. Here's what I'm working with: - Filed Form 8606 for 2022 with a basis of $4,250 - All recharacterizations and conversions happened in 2023 before the filing deadline - Roth IRA 1099-R has code R in Box 7 - Traditional IRA 1099-R has code 2 in Box 7 Can someone PLEASE tell me how to get Turbotax to stop treating this as income? I know this shouldn't be taxed again but I can't figure out how to make the software understand that!

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19 comments

Keisha Jackson

•8M

This is a common issue with tax software handling recharacterizations. The problem is that Turbotax doesn't automatically recognize the connection between these transactions without some help. You need to go back to the 1099-R entry section and make sure you've selected the specific option that this distribution was a "recharacterization" when prompted. Then when entering the traditional IRA 1099-R (with code 2), you need to indicate it was a conversion to Roth IRA of previously non-deducted contributions. The key is Form 8606. When you enter that form, make sure you're showing the $4,250 as your non-deductible basis in the traditional IRA. This tells the IRS (and should tell Turbotax) that you've already paid tax on this money, so it shouldn't be taxed again during the conversion. Also double-check that you're entering both 1099-Rs in the correct order - sometimes that matters with Turbotax's calculation flow.

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Keisha Jackson

•8M

The tax software should understand the backdoor Roth process if you answer all the questions correctly, but sometimes the question sequence doesn't fully capture the situation. With H&R Block specifically, after indicating it's a recharacterization, you should get follow-up questions about the traditional-to-Roth conversion. Make sure you're entering Form 8606 correctly as that's where your non-deductible basis is tracked, which prevents double taxation. For any tax software, the crucial part is ensuring you've properly documented the non-deductible basis on Form 8606. This tells the software which portion of the conversion isn't taxable because you've already paid tax on those dollars.

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Amina Diop

•8M

I was stuck in the exact same situation last year with my recharacterized excess Roth contribution. After hours of frustration, I found a solution using taxr.ai (https://taxr.ai). It analyzes your tax forms and identifies exactly where the software is misinterpreting the transactions. For me, it spotted that TurboTax was missing the connection between my recharacterization and conversion. The tool showed me exactly which screens in TurboTax needed adjusting and how to enter the information correctly. It specifically found that I needed to indicate the funds were "already taxed" when prompted about the conversion. It saved me from paying taxes twice on the same money and helped me document everything properly for potential IRS questions later.

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Amina Diop

•8M

It works retroactively for previous years - you can upload your past returns and it will identify issues that might warrant filing an amended return. It helped me decide whether the correction was worth the effort of amending my return based on the tax difference. You don't upload your entire return - it focuses specifically on the forms and worksheets related to your question. You can blank out any personal info you're concerned about. TurboTax does have built-in help, but it's generic and doesn't always address complex scenarios like recharacterizations that cross tax years. The tool is more like having a tax pro look specifically at your situation.

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Natasha Romanova

•8M

Just wanted to follow up about that taxr.ai recommendation. I was really skeptical but gave it a try with my Roth IRA recharacterization issue. Turns out I was making a critical mistake when entering my Form 8606 information. The site analyzed my 1099-Rs and found exactly where TurboTax was misinterpreting my inputs. There's actually a specific screen where you have to manually check that the contribution was already taxed, which the normal flow doesn't make obvious at all. Fixed the issue and my taxable income dropped by exactly the $4,250 that was being incorrectly added. Definitely worth checking out if you're dealing with these weird IRA edge cases that tax software doesn't handle well automatically.

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NebulaNinja

•8M

If you're still struggling after trying to fix the software inputs, you might need to talk directly with the IRS. I know calling them is basically impossible, but I used Claimyr (https://claimyr.com) and it changed everything. There's even a video showing how it works: https://youtu.be/_kiP6q8DX5c I was in a similar situation with a botched Roth conversion that TurboTax couldn't handle correctly. After waiting on hold for 3+ hours multiple times, I tried this service. They somehow got me connected to an IRS agent in about 20 minutes who walked me through exactly how to report the transactions. The agent confirmed that recharacterized contributions followed by conversions should NOT be taxed again, and gave me specific instructions for TurboTax that actually worked.

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NebulaNinja

•8M

It's not magic - they use a system that navigates the IRS phone tree and waits on hold so you don't have to. When an agent picks up, you get a call back to connect with them. It's basically like having someone wait on hold for you. The advice quality depends on the agent, true - but I was lucky to get someone who clearly understood the recharacterization rules. She directed me to the exact forms and worksheets I needed to complete in TurboTax. The key was properly documenting the non-deductible basis on Form 8606, which prevents the conversion from being taxed again.

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Emma Wilson

•8M

I was totally wrong about Claimyr being a scam. After struggling with this exact Roth recharacterization issue for weeks, I decided to try it as a last resort before just giving up and paying the extra tax. Got connected to an IRS agent in about 15 minutes who knew exactly what I was talking about. She explained that this is a common issue with tax software and walked me through the correct way to enter everything. The key was making sure Form 8606 correctly showed my non-deductible basis and that both 1099-Rs were properly categorized. The agent even sent me IRS documentation about recharacterizations that I could reference if I ever got audited. Definitely worth it to speak directly with someone who could clarify the proper tax treatment.

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Malik Thomas

•8M

I fixed this exact problem in TurboTax last year. The issue is that TurboTax doesn't automatically connect your Form 8606 basis with the 1099-R for the conversion. Here's what worked for me: 1) When entering the Roth IRA 1099-R with code R, make sure to select that it was a "recharacterization to traditional IRA" 2) For the traditional IRA 1099-R with code 2, select that it was a conversion to Roth IRA 3) Importantly, when it asks about the traditional IRA contribution, select that these were NON-DEDUCTIBLE contributions 4) Double-check your Form 8606 to ensure it shows the $4,250 as your basis TurboTax sometimes has a bug where it doesn't carry the information between these forms correctly. You might need to go back and forth between the entries a few times before it calculates everything properly.

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Malik Thomas

•8M

Yes, there is a specific screen! After entering the 1099-R with code 2, TurboTax asks something like "Tell us about this distribution." That's where you need to select that it was a conversion of non-deductible contributions. Then on the next screen, it will ask if you've already paid taxes on this money - that's the crucial checkbox you need to mark YES on. The software doesn't make this obvious at all. Once you check that box, you should see your taxable amount reduce to zero (or to just the earnings portion if there were any gains between recharacterization and conversion).

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